Stock Market Today: An Early Earnings Update

Near the top of the influence list for the stock market today, and for the rest of the global financial markets today, as well as for the rest of the week, is the slew of big-time corporate earnings on tap. In fact, the market today will get earnings from Dow Jones Industrial

Average component Microsoft Corporation (NASDAQ:MSFT), as well as other tech giants such as Seagate Technology PLC (NASDAQ:STX) and Texas Instruments Incorporated (NASDAQ:TXN).

At the start of the market today, about 20% of the S&P 500 has reported earnings, and the results have been broadly mixed. Approximately 75% of those firms have beaten estimates, which is a pretty good percentage; however, the results haven’t been as good on the revenue front where the results have been much more in-line with estimates.

So, at least so far, we are not seeing the strong revenue numbers like we saw during Q3 earnings season late last year. I think the single biggest takeaway so far from this earnings season is that between the strong US dollar and the reduction in expected energy company earnings, the expected S&P 500 earnings number has come in somewhat materially from $130/share six months ago to under $125/share now, which does have an effect on valuations.

Using $122/share, at 2,070 the market trades at 17X current year earnings—not prohibitively expensive given 0% interest rates. However, given the macro environment it’s definitely on the high side. Point being, valuation is something we need to keep an eye on if results for the remainder of earnings season continue to disappoint, because valuation could become a mild headwind on the S&P 500 towards 2,100 (it’s one of the reasons I’m cautious about buying up here).

The markets today will start to get resolution in several of the macro overhangs that have weighed on stocks early in 2015, but at 2,070 a lot of “non-negative” resolution is already priced in, and I continue to have a hard time seeing a material positive near-term catalyst that will push stocks to 2,100 and beyond.

Last week’s ECB decision on QE was a positive, as the program will be powerful, and global central bank easing is a general tailwind on stocks. And, while likely a problem for another day, the Greek elections have provided at least some certainty over that hitherto unknown.

As for the remainder of the focus on the markets today, we have the Fed meeting on Wednesday. What we’ll look for here is whether the Fed is getting more “dovish” given the global slowdown and central bank easing. “When/How the Fed will raise rates” is a macro headwind on stocks, so this week will be a mover for the stock market today, and for the remainder of the week, month and quarter.

However, keep in mind, even if the Fed is dovish Wednesday, the market would much prefer a surging economy, rising inflation and higher rates, not continued low rates. Finally, the Russia/Ukraine situation is heating back up as outright fighting between Russian backed rebels and Ukrainian government forces started again over the weekend, and the West is already threatening more sanctions.

Bottom line: In our estimation there remain too many headwinds for a material move higher.

The news last week was bullish for the financial markets around the world, including the US, but I am not a buyer at these levels, and would wait to add to select sectors more towards 2,000 in the S&P 500.